Marathon Oil Corporation

Welcome to the Marathon Oil Q4 earnings call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, to queue up with your question, please press star, then 1 on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to Guy Baber, Vice President of Investor Relations. Sir, you may begin.

Thank you, Vanessa, and thanks to everyone for joining us this morning on the call. Yesterday, after the close, we issued a press release, slide presentation, and investor packet that address our fourth quarter and our full year results, as well as our 2021 capital budget. Those documents can be found on our website at MarathonOil.com. Joining me on today's call, as always, are Lee Tillman, our Chairman, President, and CEO, Dane Whitehead, Executive VP and CFO, Pat Wagner, Executive VP of Corporate Development and Strategy, and Mike Henderson, Senior VP of Operations. Today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and presentation materials, as well as to the risk factors described in our SEC filings. With that, I'll turn the call over to Lee, who will provide his opening remarks. We'll also hear from Dane, Pat, and Mike today before we get to our question and answer session.

Lee? Thank you, Guy, and good morning to everyone listening to our call today. I want to start by once again thanking our employees and contractors for their resilience and dedication as we continue to manage through the COVID-19 pandemic as critical essential infrastructure providers. The safety and health of our people remains front and center to everything we do. Just this past week, many of our team, particularly here in Texas, also navigated multiple days without power or running water amidst a generational winter storm and did so without incident. I'm truly proud of our people and their perseverance. They have risen to the challenge again and again. The execution excellence I have the privilege of discussing today is the product of their outstanding work. While 2020 was a challenging and unprecedented year for our industry, we focused on those elements of our business within our control and delivered results that speak for themselves. But for Marathon, it is not just about results, but how we achieve those results. First and foremost, I'm especially proud of our second consecutive year of record safety performance as measured by total recordable incident rate. Despite the challenges associated with the pandemic and the dramatic shifts in our activity levels throughout the year in response to commodity price volatility, the safety of our people will always be my top priority. During 2020, the company also made significant progress in improving its environmental performance, achieving an estimated 20% reduction to its GHG emissions intensity relative to 2019, and improving total company gas capture to approximately 98.5% for the fourth quarter of 2020. Beyond maintaining safe and environmentally sound operations, our primary focus in 2020 was threefold, reduce and optimize our capital program in response to commodity price volatility, continue to lower our cost structure, and protect our investment grade balance sheet and generate free cash flow. Today, I'm pleased to highlight comprehensive success across all elements of our 2020 playbook. First, we reduce and optimize our capital program to navigate unprecedented commodity price volatility. Our 2020 capital expenditures totaled $1.16 billion, below our most recent guidance of $1.2 billion on tremendous execution, and more than 50% below our original capital budget for the year. We dramatically reduced our well cost during 2020, the continuation of a long-standing trend due to a combination of optimized well design, execution efficiency, supply chain optimization and commercial leverage. Average completed well cost per lateral foot was down 20% year-on-year in 2020, with fourth quarter down approximately 35% from the 2019 average. We expect the vast majority of these well cost reductions to prove durable. Second, we continued our multi-year trend of successfully lowering our cost structure. Early in 2020, we took aggressive and decisive action in response to the challenging environment. The end result was a year-on-year reduction of over 20% to both our production costs and our general and administrative costs, exceeding the initial cost reduction targets we set last year. Both our U.S. and international segments achieved record low unit production costs in 2020. we protected our investment-grade balance sheet and maintained our focus on free cash flow. Our collective actions in 2020 culminated in just under $280 million of free cash flow generation for the full year, including about $160 million during fourth quarter with oil production flat sequentially and with WTI averaging only $42 per barrel. Funded entirely by free cash flow, we returned around $250 million back to our investors in 2020, consistent with our multi-year return of capital track record. This included $150 million of share buybacks and dividends, including our reinstated base dividend during fourth quarter, as well as $100 million of gross debt reduction, consistent with our objective to continue improving our balance sheet. We also proactively reduced our November 2022 debt maturity by half, or $500 million. Ultimately, we successfully responded to the supply and demand crisis in 2020 and further optimized and enhanced our business model. In addition to pulling all the necessary levers to manage through the crisis, we dramatically improved our resilience, and our ability to generate robust financial outcomes in a lower and more volatile commodity price environment in the future. We have therefore entered 2021 on firm footing. And while commodity prices have surprised to the upside to start this year, we have no doubt that oil and gas prices will remain volatile. We fully understand that this is a cyclical business. that we are price takers and not price predictors and that the range of potential outcomes for supply-demand balances remains wide. The market remains well supplied with nascent demand recovery just emerging from the pandemic crisis. As I often remind our team, we can't control the macro and we certainly can't predict the oil price. Regardless of these external forces, we must remain focused on our core priorities, corporate returns and free cash flow, returning capital to our investors, strengthening our balance sheet, and ESG excellence. Additionally, we will stay focused on executing on our transparent framework for capital allocation. More specifically, we will continue to optimize our cost structure and reduce our corporate free cash flow break-evens, further improving our downside resilience and enabling us to generate free cash flow across the widest possible range of commodity prices. we will stick to our disciplined reinvestment rate capital allocation framework to provide clear visibility to free cash flow generation and the use of a meaningful percentage of our operating cash flow for investor-friendly purposes, prioritizing balance sheet enhancement and return of capital to shareholders. As a reminder, assuming $45 per barrel WTI or higher, our reinvestment rate will be 70% or less and we will make at least 30% of our cash flow from operations available for investor-friendly purposes. Finally, if commodity prices surprise to the upside, we will remain disciplined and won't chase growth. Even if the recent commodity price shrink persists, we will not raise our capital spending. Our $1 billion maintenance capital budget will remain our budget. With higher pricing, we will simply generate even more free cash flow. We will accelerate our balance sheet improvement and the realization of our targeted leverage metrics, and we will evaluate incremental return of capital to our investors beyond our base dividend and a minimum $500 million gross debt reduction target for 2021. With this brief overview of our capital allocation framework, I will now turn it over to Mike Henderson, who will walk us through the highlights of our 2021 capital program.